• Till Death Do Daves Part (Or A Firing, Because A Buyout Seems Unlikely)

    by  • July 9, 2013 • NHL • 17 Comments

    Twitter’s Andy Levang pointed out something interesting about the structure of David Clarkson’s contract with the Toronto Maple Leafs, which is up now on Cap Geek. It contains an awful lot of signing bonus money.

    The other interesting thing about the deal is how the really big money has been pushed back to years four and five. Now, most things happen for a reason. Why might the Clarkson contract be structured like this? I think it’s pretty easy to guess why the big money is pushed back in the deal. I suspect that Clarkson and his agent want to limit the extent to which he pays into escrow and by holding off a few years on the $7MM years, there’s time for the NHL’s salary structure to sort of adjust to the new world and, hopefully, get the size of the escrow payments kept by the owners down to a more reasonable level.

    Clarkson’s not the only guy who signed a big money deal as a free agent who’s holding off a bit on cashing in. Mike Smith’s new deal has a $5.67MM cap hit; he’s only drawing a $4MM salary next year. Mike Ribeiro is doing something similar. Nathan Horton is taking less in his first year. So is Valteri Filppula. Those guys signed with less wealthy teams, so it’s maybe in the team’s interest as well to push off the bill for the signing as well.

    Nobody’s pushed more money further back in their contract than Clarkson though. There’s a risk with doing that. See, an NHL contract isn’t really a promise to employ you for however many years it says at however many dollars. It’s really a series of one year options that the team activates every year when it doesn’t buy you out. If you’ve got two years on your deal at $3MM per, the team is obliged to pay you $1MM a year for four years. If it would like you to play for them, it doesn’t pay you out and it essentially activates one of those options. Your deal is now a one year deal for $3MM plus an obligation to pay you $1MM a year for two years that will convert into a requirement that you play for the team for $3MM in year two if you aren’t bought out.

    If you think it through that way, you see that players with marginal track records who defer the big money in their long term contracts run a heck of a risk – they run the risk that the GM who signed them (or, more realistically, his replacement) will come to the conclusion that they’d be better off with the extra salary cap space that they’d have if they bought you out. If you’ve deferred taking a bunch of money, you run the risk that you’ll be bought out before it comes due, which would cost you a pile and, if you’re being bought out, you probably don’t have good options to make it up.

    How can you get around that? Well, there was an interesting note in the Vinny Lecavalier buyout. It turned out that his signing bonus was guaranteed. He has $3MM in signing bonuses owed in 2013-14 and 2014-15 and another $2MM in 2015-16. As we learned, he gets 100% of that money (subject to escrow). He then gets 2/3 of the salary that was remaining on his contract when he was bought out. This, according to Cap Geek, is negotiable:

    Signing bonuses can affect buyout amounts depending on the language of the contract. Vincent Lecavalier’s 2009-2020 contract, for example, specified “non-refundable” signing bonuses, meaning he received them in addition to his 2013 compliance buyout payments. Other contracts specify that the signing bonuses are contingent upon the player fulfilling the contract.

    Let’s assume that all of Clarkson’s bonuses are guaranteed (I’ve asked the CapGeek guy and he doesn’t know) – this makes a certain amount of sense to me because if he was my client and was a guy who didn’t have a long track record of being what he’s being paid to be, I’d be worried that he wasn’t really that and might ultimately end up being bought out. It’s been rumoured that the Oilers had offered Clarkson more money than he ended up taking in Toronto. For the sake of discussion, assume that the Oilers were willing to pay him a flat $6MM a year for 7 years, with no signing bonus. Now let’s look at how much money Clarkson would make if he’s bought out after each year of his deal.

    You can see that the Toronto deal nets him more than the hypothetical Edmonton deal if he’s bought out in the first three years of it – ie. if he’s a disastrous bust who needs to be moved along. If he plays out the deal, he would have made more in Edmonton but it seems to me that there’s more certainty with the Toronto offer for a guy with a limited track record.

    As you’d expect, this has cap consequences. We know from Lecavalier’s contract that you have to pay a guaranteed signing bonus in the year it’s due and that you get hit with the cap consequences then. These numbers won’t be the precise cap hit but, even if Clarkson was terrible and bought out, it seems likely that the Leafs would be facing big cap hits for him because the bonus amounts are so high.

    All of which is to say that this appears to be a uniquely strong commitment by a team to a player. The Leafs are richer than God and the money’s not really an issue, as the absurd Mikhail Grabovski buyout illustrates. Cap hits sting though and even with an $80-$90MM cap, taking a $4MM+ cap charge on a guy you bought out is steep. It’s a heck of a large bet to make on a guy without a big track record.

    Email Tyler Dellow at tyler@mc79hockey.com


    17 Responses to Till Death Do Daves Part (Or A Firing, Because A Buyout Seems Unlikely)

    1. Triumph
      July 9, 2013 at

      Two things:

      If you get bought out and the big money’s near the back end of your contract, you still receive that money in proportion to your buyout, it’s not like it completely disappears.

      Secondly, this is less of a worry in today’s NHL – Clarkson has a modified NTC and an NMC, we’ll know what the modified NTC is, but assuming capgeek is correct on this point, it’s not a full NTC, which is critical. (AFAIK, there’s no way to make a modified NTC more onerous than a full NTC). With the ability to retain parts of contracts, the Leafs could pick up part of his salary and trade him after July 1, meaning he’d be a giant bargain to the receiving club in Year 1 and cost less money in general. If you retain 1/3rd of a contract in a trade, it’s obviously better than a buyout because it only lasts until the conclusion of the contract, not twice as long as that – I think as the salary cap expands we will see more salary retained in trades on contracts such as this one.

      • Triumph
        July 9, 2013 at

        To expand on the point above, say the Leafs deal him on July 2, 2016, retaining 1/3rd of his salary. The team who receives him will pay only $1,333,333 for Clarkson’s services that year, and he will carry a cap hit of $3.5M. Next year they will have to pay him $4,666,666, but that’s still only $6M total. If Clarkson’s a third-line player at that point, that’s about the going rate for 3rd liners in UFA.

        It gets even better for Toronto to do this after July 1, 2017.

        Now you might think that Clarkson’s value has degraded to the point where teams won’t even want him that cheaply, and that’s possible, but not likely with how much that cap is likely to blow up and how Clarkson will retain all the things that make general managers inexplicably love him. Either way, there is a larger escape hatch on this deal than you think – it just involves using Toronto’s immense cash reserves.

        • wan ihite
          July 9, 2013 at

          Glad to hear that, because, ye gawds, if you buy him out after 2 years, then we’d be paying his cap hit for TEN YEARS. That’s enough time for a 12 year old to break into the NHL

    2. Pingback: Spectors Hockey | NHL Blog Beat – July 9, 2013.

    3. DB
      July 9, 2013 at

      “For the sake of discussion, assume that the Oilers were willing to pay him a flat $6MM a year for 7 years, with no signing bonus.”

      Why would we do that? You just stated that most of the big signings were constructed in a similar manner. I think a more accurate assumption would have been that Edmonton had constructed a deal similar to Toronto’s. Who knows, it might of been better, on top of the over $5,000,000 in money he walked away from to not sign with the oilers.The oilers cant sign big name UFA’s so assuming the oiler deal was weaker might make you feel better but its probably not accurate.

      Being a big market team with tons of cash, the leafs arent concerned as much about the payout as they are with the cap. Id be more concerned with the length of the deal. Im sure the leafs would rather sign Clarkson to 5 years but that wasnt a reality. We know this because Edmonton and Ottawa were rumoured to be offering Clarkson a 7 year deal. Toronto can move him and pay part of his salary to a team who wants the caps hit. The leafs will probably get 4 good years out of him. Its the last 3 that are the question.

      Theres not too many signings that can end a GM’s career. Look at Horcoff(sorry, couldnt resist) Nonis took over a team that hadnt made the playoffs for 7 years and got into the post season. Not sure how much credit he can take for that but it doesnt hurt. A better question is why cant Edmonton sign the A player UFA’s. Heck, they have a hard time attracting the C players with more money and still struggle. Its a hockey city. Its been the bad new bears for most of the last decade but the fans are loyal. There is young talent so its got building blocks. A team has to be able to make trades and dip into the free agency market in order to fill the gaps or it just cant win. Is it the weather? The schools? Calgarys ugly step sister? Why cant the oilers get the David Clarksons of th world when they offer more money then everyone else? It doesnt seem right but its reality.

      • July 11, 2013 at

        Easy, he says why…
        “For the sake of discussion”

        • DB
          July 11, 2013 at

          You didnt put much thought into that response. I just gave more than enough reasons why it wasnt a valid point of reference,even for discusssion. When you start with the wrong point of reference, you never come to the right answer. Good little trick to prove your point though. Im not coming at the author. In fact, i enjoy reading his stuff even if i disagree with him. Good writer abnd a good fan of his team and the sport. Respect that

      • Boris
        July 11, 2013 at

        Why would we do that? I say because most NHL contracts actually have the same guaranteed salary every year – therefore it’s worth asking why when something else happens. We’re also seeing the first UFA frenzy under a re-worked CBA so it’s a good time to start trying to identify changes in how agents and clubs approach these negotiations.

        When there’s a really complicated answer to a question, a reasonable response is to ask how that differs from the simplest solution. The presumptive simplest solution here would be to assign the same salary to every year of the deal, so that seems a pretty good starting point in trying to divine reasons for the complex structure of this contract (and others). The flat rate contract assumption gives a baseline from which to determine how backloading impacts the bonus/buyout structure.

        Stop being distracted by the temptation to show off what amazing cheap shots you can hurl at Edmonton as a city or the Oilers as an organization and re-read this piece as a thought experiment about NHL contract structures in general, because that’s exactly what it is. Hell, forget Edmonton even exists and imagine that Toronto offered Clarkson and his agent 6mil per year straight up. Then imagine the tables in this blog post being an attempt to simulate the reasoning of the agent as he tries to restructure the offer in order to best protect the interests of his client.

      • Suntan Oil
        July 24, 2013 at

        Justin Schultz and Anton Belov say hi

    4. July 9, 2013 at

      It’s an interesting variation, due to the new term limits, on a trick that goes back to the previous CBA. When the Habs got Erik Cole in free agency, the deal was structured thusly:

      4 years, 4.5 millions cap hit, running from 2011-12 to 2014-15:
      11-12: 3 millions salary, 3 millions signing bonus
      12-13: 2 millions salary, 2 millions bonus
      13-14: 4 millions salary
      14-15: 4 millions salary

      So if there was a Lockout, Cole had already pocketed 8 of the 18 millions contract (bonuses are paid the 1st of july, or so I tought I learned when the whole Weber failed offer sheet) *and* if he was to loose part of a complete season of salary, that was to be prorated on only 2 millions out of 18.

      Well, that’s how I understood it.

    5. July 10, 2013 at

      Ive looked around (and at the capgeek website) but haven’t seen this explained anywhere. How is this contract legal? From capgeek ” Meanwhile, the lowest year’s compensation cannot be less than 50 per cent of the highest year’s compensation.” His compensation in 19-20 is < 0.5*16-17 (or 17-18). It appears the base salary isn't, if you deduct off the signing bonuses, but the total salary is. If that's the reason, it seems to me that you can structure contracts to be pretty significantly backdiving just like in the last CBA. Any idea Tyler?

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    7. Pingback: Spectors Hockey | Another Clarkson Contract Critique.

    8. Jay
      July 14, 2013 at

      Tyler, you’ve been on absolute fire since you unravelled the Caramilk mystery (your analysis of the puck possession woes of the 2nd line).

      Over the past several years, when I’ve read your blog it’s sort of struck me that your blog’s read like the SETI project, except that you’ve been looking for signs of intelligent life within the Oilers management.

      With the black hole of puck possession on Gagner’s line this past year, the Oilers go out and trade for Perron who apparently has great puck possession stats. Bang! Signs of intelligent life…???

      What are your thoughts on the Perron acquisition?

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    10. junior elvis
      December 13, 2013 at

      “the capgeek guy” is matthew wuest. dude does half the legwork for every blogger and journo out there and he’s “the capgeek guy”

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